Dai-ichi Life Raises $11 Billion in Japanese IPO

Dai-ichi Mutual Life Insurance Co. will raise 1.01 trillion yen ($11 billion) in the nation’s biggest initial public offering in more than a decade after pricing its stock 9.7 percent below the top of a planned range.

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Japan’s second-largest life insurer will sell 7.2 million shares in the demutualization at 140,000 yen apiece, compared with the 125,000 yen to 155,000 yen range it had set, according to a statement posted on the company’s Web site today.

The offering is the world’s largest of 2010 and comes after money raised from IPOs in Japan fell to the lowest level in at least two decades last year. The company’s market value at the announced price is equal to 0.56 times embedded value, or the sum of its net assets and the current value of future profits from existing policies. That’s 14 percent more than T&D Holdings Inc., Japan’s largest publicly listed life insurer, and 33 percent less than Sony Financial Holdings Inc.

“The pricing seems reasonable,” said Yoshihiro Ito, a senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $8 billion. “The question is how well it will do the on the first day of trading, given the prospect for life insurers in Japan.”

Dai-ichi Life is switching from mutual to stock-based ownership to expand fundraising options for acquisitions and partnerships as it grapples with an aging society and the slowest-growing economy in Asia.

Overseas Investors

Dai-ichi Mutual, which will change its name to Dai-ichi Life Insurance Co., is scheduled to list shares on the Tokyo Stock Exchange April 1. The IPO will be the biggest in Japan since cell phone company NTT DoCoMo Inc. went public in 1998.

Nomura Holdings Inc., Mizuho Securities Co. and Bank of America Corp.’s Merrill Lynch Japan Securities Co. were hired to manage the offering. Goldman Sachs Group Inc. was a global arranger on the sale.

“It appears there was less interest from foreigners than originally anticipated as Dai-ichi lowered its share allocation to foreign institutions,” said Mac Salman, a Tokyo-based insurance analyst at Macquarie Group Ltd. in Tokyo.

The Tokyo-based company will have 10 million shares, 5 million of which were sold in Japan and 2.1 million overseas, according to statement. The company will issue 100,000 shares in an overallotment and another 2.9 million will be distributed to policyholders.

Prudential Plc of London, the U.K.’s biggest insurer, paid 1.69 times the embedded value of New York-based American International Group Inc.’s Asian life insurance unit in its takeover announced this month.

Insurer Valuations

T&D Holdings of Tokyo has a market capitalization of 684.9 billion yen, or 0.47 times its embedded value, based on a sale document distributed by banks involved with the Dai-ichi offering. Tokyo-based Sony Financial, the insurance and banking unit of Sony Corp., has a ratio of about 0.84 times.

“Japanese life insurers are cheap,” said Hideo Arimura, a senior fund manager at Mizuho Asset Management Co., which oversees about $36 billion in Tokyo. “But it’s also true that they’re cheap because of their lack of growth potential.”

Japanese companies raised $490 million yen in six IPOs so far this year, compared with 15 U.S. deals totaling $3 billion, data compiled by Bloomberg show.

The Dai-ichi deal will make this year the biggest for Japanese IPOs since 2006, when companies raised 2.14 trillion yen, Bloomberg data show. Sales sank to 56 billion yen last year as the collapse of New York-based Lehman Brothers Holdings Inc. froze credit markets and the Topix index posted the worst performance in the world’s 20 biggest equity markets.


Other insurers in the region are also raising funds by going public. Korea Life Insurance Co., the nation’s second- largest insurer, sold stock earlier this month in the country’s biggest IPO in almost four years, while Tong Yang Life Insurance Co. went public in Seoul in September.

Dai-ichi, which had 8.2 million policyholders as of March 2009, will use proceeds of the sale to convert to stock-based ownership from policy-based mutual ownership. The switch will expand fundraising options for acquisitions and partnerships as the population declines, the company told policyholders in June.

About 3.06 million policyholders are eligible to receive at least one share. If they take up their entitlements, Dai-ichi will be the most widely held company in Japan, surpassing Nippon Telegraph & Telephone Corp., according to the insurer.

Japan’s life insurers are struggling for new customers after the first global recession since World War II. The nation’s economy will grow less than 2 percent annually through at least 2012 after contracting 1.2 percent in 2008 and 5.2 percent last year, estimates compiled by Bloomberg show.

Aging Population

That compares with growth of 9.6 percent projected for China this year, while gross domestic product in the U.S. will rise at least 3 percent annually from 2010 to 2012, the estimates show.

Almost 23 percent of Japan’s 126 million people will be older than 65 this year, compared with 13 percent in the U.S., data compiled by Bloomberg show. Japan is the world’s oldest society, with a median age of 44, according to the United Nations’ World Population Ageing 2009 report.

“What investors will be looking for is their dividend yield and stability in its business,” Okasan Asset’s Ito said. “Institutional investors that are managing index-tracking funds will inevitably be forced to buy the stock eventually, given the size, but whether Dai-ichi can keep their shareholders will depend on its dividend yield and stability.”

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